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Tarachi Gold Corp. — Interim / Quarterly Report 2021
Jun 25, 2021
47572_rns_2021-06-25_9d570075-6b8c-42e0-9a87-1feda022987d.pdf
Interim / Quarterly Report
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MANAGEMENT DISCISSION ANALYSIS
FOR THE NINE MONTHS ENDED
APRIL 30, 2021
TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
BASIS OF DISCUSSION & ANALYSIS AND DATE
This Management Discussion and Analysis (“MD&A”) of the financial position and results of Tarachi Gold Corp. (the “Company” or “Tarachi”) should be read in conjunction with the Company’s unaudited condensed interim consolidated financial statements and related notes for the nine months ended April 30, 2021 and 2020. The MD&A was prepared to conform to National Instrument 51-102F1 and was approved by the Board of Directors prior to its release. Readers are cautioned that the MD&A contains forward-looking statements and that actual events may vary from management’s expectations. Readers are encouraged to read the Forward-Looking Statement disclaimer included with this MD&A.
The condensed interim consolidated financial statements and MD&A are presented in Canadian dollars, unless otherwise indicated, and have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The statements and any summary of results presented in the MD&A were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Please consult the audited financial statements for the years ended July 31, 2020 and 2019, and the condensed interim financial statements for the nine months ended April 30, 2021 and 2020 for more complete financial information.
All of the Company's public disclosure filings, including its most recent management information circular, material change reports, press releases and other information, may be accessed via www.sedar.com and readers are urged to review these materials, including the technical reports filed with respect to the Company’s mineral properties.
This MD&A has been prepared based on information available to the Company as of June 25, 2021.
OVERALL PERFORMANCE
NATURE OF BUSINESS
Tarachi Gold Corp. was incorporated as Kal Minerals Corp. under the Business Corporations Act (British Columbia) on February 19, 2016. On April 7, 2020, the Company changed its name to Tarachi Gold Corp. The shares of the Company are trading on the Canadian Securities Exchange under the symbol “TRG”. The Company’s principal business activity is the exploration of mineral properties. The Company currently conducts its operations in Mexico.
The head office and principal address of the Company is located at Suite 700, 1090 West Georgia Street, Vancouver, B.C. V6E 3V7.
The Company has no substantial revenue and supports its operations through the sale of equity or assets such as mineral properties. The value of any mineral property is dependent upon the existence or potential existence of economically recoverable mineral reserves. See section related to “Risk Factors” in this statement.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
OVERALL PERFORMANCE, CONTINUED
PROJECT ACQUSITION
On February 8, 2021 the Company announced signing of the purchase agreement with Manto Resources S.A. de C.V. (“Manto”) to acquire Magistral del Oro mill and tailings project (“Magistral”) and on March 18, 2021 the Company announced the closing for the purchase of Magistral. The mill and high-grade gold tailings, located in the State of Durango, provide the Company with a near-term pathway to gold production and the Project is expected to start generating positive cashflow in 2022.
Acquisition Terms
Final terms of the purchase agreement are in line with the original Letter of Intent dated October 9, 2020, with Manto:
-
Consideration for the acquisition will consist of issuing 4,000,000 common shares of Tarachi to Manto.
-
• The Company will grant Manto a 15% net profits royalty on the estimated 1.3 million tonnes of tailings material expected to be processed and reimburse Manto for US$1,179,500 of cash outlays.
-
The Company will satisfy certain obligations of Manto by paying a total of approximately US$1,111,000 plus any Mexican value added tax (IVA) in cash or shares and issuing 1,019,250 common shares upon closing.
-
Manto will be entitled to the following staged bonus payments:
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An additional 4,000,000 common shares 60 days after the closing date.
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4,000,000 common shares 180 days after the closing date.
-
4,000,000 common shares 365 days after the closing date.
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US$500,000 in cash following 6 months of commercial production at Magistral.
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US$500,000 in cash following 12 months of commercial production at Magistral.
-
Upon the Company earning US$15,000,000 in revenue from Magistral, the Company will pay Manto US$1,000,000.
-
A finder's fee of 1,000,000 common shares will be issued to Spirit Exploration Corp.
FINANCING
On August 14, 2020, the Company closed a non-brokered private placement for gross proceeds of $9,487,442 through the issuance of 23,718,605 units at a price of $0.40 per unit. Each unit consists of one common share and one-half common share purchase warrant. Each warrant is exercisable at a price of $0.70 per share for a period of 24 months. The Company paid finders’ fees of $304,938, other related fees of $10,429 and issued 755,610 finders’ warrants at the same terms as the warrants described above. The fair value of the finders’ warrants is $425,007.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
OVERALL PERFORMANCE, CONTINUED
EXPLORATION POJECTS
Juliana and Las Moritas
On September 3, 2020 (“Effective Date”), the Company entered into an option agreement to acquire a 100% interest, subject to a 3% NSR, in the group of mining concessions known as the Juliana, Juliana No.1, Juliana No.2 and Las Moritas Mining Concessions. The 4 concessions cover a total surface area of 1,148.42 hectares and are located in the Sierra Madre Gold Belt of Eastern Sonora, Mexico. The Company can earn 100% in the project by paying staged cash payments of US$2.1 million and issuing 4 million common shares of the Company over a period of four year.
Based on the channel sampling results of 6.34 grams/tonne gold over 62.55 metres at the historic La Dura mine announced on August 19, 2020 the company optioned these four concessions due to their close proximity immediately to the north and on trend with the felsic volcanic pile hosting the La Dura gold mineralization.
Geologically, mineralization is generally associated with high sulphidation epithermal mineralization contained within felsic volcanic piles typically of rhyodacitic composition. Higher grade gold concentrations are typically associated within silicified zones containing vuggy silica and breccias hosting hematite and specularite. Native gold has been observed along late-stage fracture coatings associated with barite.
MANAGEMENT CHANGES
On December 1, 2020, the Company announced appointment of new CFO and Corporate secretary and on December 2, 2020, the Company announced appointment of new CEO and Chairman of the board.
EXERCISE OF STOCK OPTIONS AND WARRANTS
During the nine months ended April 30, 2021, 400,000 of options and 690,000 warrants were exercised for cash proceeds of $204,850.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
RESULTS OF OPERATION
El Magistral
Since acquiring the Magistral Project, Tarachi has engaged Ausenco Engineering (“Ausenco”) to conduct a preliminary economic assessment of the project and provide an NI 43-101 compliant resource estimate for the tailings material that Tarachi has access to. Tarachi plans to process the tailings material through the Magistral mill to produce gold and other recoverable metals beginning in 2022. The preliminary economic assessment is expected to be completed by mid-summer 2021.
An auger drill rig was mobilized to Magistral at the end of March 2021 to conduct sampling work as part of the preliminary economic assessment. A total of 37 auger holes were completed in the tailings basin. Drilled samples will be used for metallurgical test work and analyzed for metal content at a lab in Canada.
The existing permits for the Magistral project are currently being audited by consultants in Mexico to determine their current status and what requirements need to be met to ensure that the project is in compliance and fully permitted before the mill is commissioned in 2022.
Engineers were sent to Magistral on the 18[th] of March to review the existing equipment in the mill and to provide an opinion of the mill’s current status and capabilities. An electrical review was also underway in March in order to determine the mill’s electrical consumption expectations which are needed to apply to have the mill connected to the local power grid.
In the second quarter of the year, the company will bring in a tailings disposal facility (“TSF”) specialist to assess the existing TSF and determine what modifications are required to comply with the existing tailings permits. Metallurgical work overseen by Ausenco in the quarter will also determine what modifications or upgrades are recommended for the mill in order to maximize gold recoveries and minimize operating costs. In particular, Ausenco will be looking at how best to manage the presence of cyanide soluble copper in the tailings material.
Tarachi plans to complete all modifications and upgrades to the mill and TSF over the duration of 2021 with the intent of commissioning the facility in early 2022. Tarachi expects the mill to operate at a rate of 1,000 tonnes per day and to achieve gold recoveries of approximately 70%. Actual mill capacity, gold recoveries and operating costs will depend on the results of the Ausenco report, capabilities of the existing mill equipment and what, if any, upgrades or modifications are made to the plant prior to start-up.
The historic resource estimate of 1.3 million tonnes of tailings grading 2.05g/t Au (not NI 43-101 compliant) is expected to provide feed to the Magistral mill for a period of 3.7 years at a rate of 1,000 tonnes per day. Tarachi is currently seeking out other local tailings material that could potentially provide additional feed to the Magistral mill and extend the life of the operation. There is no guarantee that Tarachi will be successful in securing additional material.
Tarachi Properties
On March 27, 2020, the Company entered into an option agreement to acquire a 100% interest in the Tarachi Project in Eastern Sonora, Mexico. The Company can earn 100% in the project by paying staged cash payments of US$5 million and issuing 10 million common shares of the Company over a period of four year. The project is located approximately 220 kilometres east-southeast of the city of Hermosillo in the state of Sonora, Mexico.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
RESULTS OF OPERATION, CONTINUED
Tarachi Properties, continued
The project area is located in the Sierra Madre gold belt of the eastern Sonora, Mexico in an established gold and silver producing region and in close proximity to Alamos Gold Inc’s Mulatos Mine and Agnico Eagle’s La India mine. To date this belt has produced resources and reverses of over 80 million ounces of gold and 4.5 billion ounces of silver. Mineralization is generally associated with high sulphidation epithermal mineralization contained within felsic volcanic piles typically of rhyodacitic composition. Higher grade gold concentrations are typically associated within silicified zones containing vuggy silica and breccias hosting hematite and specularite or replacement sulphides, mainly pyrite.
In late June 2020, the company commenced field studies on the project’s concessions focusing on detailed geological and structurally mapping and sampling. Part of the program consisted of detailed underground channel sampling in the historic La Dura mine on the Jabali Concession. On August 19, 2020 the company announced 6.34 grams/tonne gold over 62.55 metres was obtained from the La Dura channel sampling program. Mapping indicated mineralization to be contained in brecciated, east-west trending, steep south dipping quartz veins.
On November 12, 2020, Tarachi mobilized a man-portable diamond drill to commence drill testing known high-grade gold bearing structures on the San Javier concession with nine propose holes for a total of 864 metres. The HQ diamond drilling program will focus along a northwest-trending shear structure where holes SJA-14-002/004 encountered high-grade gold values 34.5 g/t gold /5.0m and 24.3 g/tonne gold over 3.0 metres respectively. These holes are approximately 100 metres apart with no other drilling completed between or down-dip.
Shear zone gold mineralization at San Javier remains open along strike and to depth and may widen with depth. Mineralization is hosted within andesitic volcanics with an intrusive immediately adjacent.
November 24, 2020, the company released initial assay results from underground diamond drill holes JAB20-03/04/05 completed at the historic La Dura mine on the company's Jabali concession. The underground La Dura drill program is testing the down-dip and potential plunge orientation to the area of initial interest identified by Tarachi geologists in the summer of 2020.
Diamond drill hole composites
| Hole ID | From(m) | To(m) | Core length(m) | Gold(g/t) |
|---|---|---|---|---|
| JAB-20-03 | 1.80 | 7.00 | 5.20 | 2.30 |
| JAB-20-04 | - | 14.50 | 14.50 | 5.49 |
| including | - | 7.00 | 7.00 | 9.67 |
| 110.00 | 118.00 | 8.00 | 0.31 | |
| JAB-20-05 | - | 20.10 | 20.10 | 4.54 |
| including | - | 10.00 | 10.00 | 7.48 |
December 3, 2020, the company released additional assay results from underground diamond drill hole JAB20-06, completed at the historic La Dura mine on the company's Jabali concession. The underground La Dura drill program will continue testing the down dip and potential plunge orientation to the area of known goldbearing structures and potential new zones. Currently, the company has two diamond drill rigs turning: one at the La Dura historic mine and the other at the San Javier shear zone. At San Javier four drill holes have been completed with the discovery of replacement-style massive sulphides encountered over several metres in one of these holes.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
RESULTS OF OPERATION, CONTINUED
Tarachi Properties, continued
Diamond drill hole composites
| Hole ID | From(m) | To(m) | Core length(m) | Gold(g/t) |
|---|---|---|---|---|
| JAB-20-06 | 2.25 | 10.25 | 8.00 |
3.95 |
| 22.25 |
43.00 |
20.75 | 5.05 |
|
| 27.65 | 33.75 | 6.10 |
14.50 | |
| New zone L1 | 51.50 |
56.00 |
4.50 | 0.84 |
| New zone L2 | 74.00 |
82.50 |
8.50 | 2.22 |
- Assay results are in core length; true width is unknown.
February 16, 2021 the company resulted assay results from drilling at San Javier and discovered the gold mineralization is more favourable along steeper structures as was found in holes SJA-20-005/006, which returned values of 11.9 grams per tonne gold over 2.0 metres and 5.39 g/t Au over 5.6 m, respectively. In both intercepts, the gold mineralization is situated along open brittle structures containing over 20 per cent sulphides, mainly pyrite with minor quartz veining/veinlets. In both drill holes, a large breccia pipe feature occurred immediately east of these intercepts consisting of angular breccia fragments cemented with 20 to 30 per cent, fine- to coarse-grained anhedral to euhedral pyrite.
Diamond drill hole composites
| Hole ID | From(m) | To(m) | Core length(m) | Gold(g/t) |
|---|---|---|---|---|
| SJA-20-001 | 36.00 |
39.00 |
3.00 |
1.58 |
| SJA-20-002 | 16.00 | 17.00 | 1.00 | 1.80 |
| 23.00 | 24.00 | 1.00 |
6.08 | |
| SJA-20-003 | 39.60 | 54.00 | 14.40 |
0.21 |
| SJA-20-004 | 34.00 | 43.00 | 9.00 |
0.61 |
| 56.00 | 60.00 | 4.00 | 0.86 | |
| 126.40 | 129.00 | 2.60 | 1.52 | |
| SJA-20-005 | 62.50 | 64.50 | 2.00 | 11.90 |
| including | 62.50 | 63.50 | 1.00 | 21.10 |
| 105.30 | 117.30 | 12.00 | 5.39 | |
| SJA-20-006 | 101.00 | 106.60 | 5.60 | 5.39 |
| including | 101.00 | 102.00 | 1.00 | 15.70 |
| SJA-20-007 | 88.00 | 105.00 | 17.00 | 0.62 |
| SJA-20-008 | NSV | |||
| SJA-20-009 | NSV |
- Assay results are in core length; true width is unknown at this time.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
RESULTS OF OPERATION, CONTINUED
Tarachi Properties, continued
Also released on February 16, 2021 Hole JAB-20-007 from the Jabali concession at the historic La Dura mine underground drilling program, was completed on an azimuth of 150 degrees, dipping minus 15 degrees for a distance of 159.95 m. The purpose of the drill hole was to test the potential southern plunge to the gold zone. High-grade gold mineralization was not encountered; however, extensive quartz brecciation and alteration occurred throughout most of the drill hole. Drilling will now focus on determining the limits to the eastern plunge of the gold zone. The associated table outlines the gold assay results from drill hole JAB-20-07.
Diamond drill hole composites
| Hole ID | From(m) | To(m) | Core length(m) | Gold(g/t) |
|---|---|---|---|---|
| JAB-20-07 | - | 10.60 | 10.60 | 1.90 |
| 16.70 | 22.80 | 6.10 | 0.76 | |
| 29.90 | 44.15 | 14.25 | 0.60 |
- Assay results are in core length; true width is unknown.
On April 27, 2021 the company announced it has completed three underground HQ diamond drill holes (JAB21-08-10) for a total of 383.3 metres within the historic underground La Dura mine. The purpose of these holes is to test the eastern and southern extent of gold mineralization associated with fractured and highly silicified and quartz vein to microvein-bearing, dacitic to rhyodacitic volcanics indicated in a figure available on-line. A total of 253 samples were selected and submitted in March for analysis. Assay results are still pending and are expected in the coming weeks. Upon completion of the underground drilling program, the company immediately initiated a proposed five-hole, 660-metre surface reverse circulation program to test south of the La Dura mine along the La Dura-Zaragoza trend. This trend between known gold occurrences and artisanal workings has not been previously drill tested. Of particular interest is where the northeasttrending Baby Doll gold occurrence is interpreted to intercept the La Dura-Zaragoza trend. To date, 487 of the proposed 660-metre program has been completed and 244 samples have been submitted for analysis, with assays still pending.
On May 06, 2021 the company released additional assay results from underground diamond drill holes JAB20-08, JAB-21-09 and JAB-21-10 completed at the historic La Dura mine on the company's Jabali concession. The underground La Dura drill program tested the downdip and potential plunge orientation to the area of known gold-bearing structures. The associated table highlights areas with significant gold concentrations contained in the three underground drill holes, and a table on the company's website provides the drill hole orientations.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
RESULTS OF OPERATION, CONTINUED
Tarachi Properties, continued
| Diamond | drill hole | composites | ||
|---|---|---|---|---|
| Hole ID | From(m) | To(m) | Core length(m) | Gold(g/t) |
| JAB-21-008 | - | 3.00 | 3.00 | 2.24 |
| 71.15 | 82.85 | 11.70 | 2.48 | |
| JAB-21-009 | - |
63.40 | 63.40 | 6.91 |
| including | 5.70 | 15.00 | 9.30 | 17.42 |
| and | 18.80 | 32.70 | 13.90 | 17.37 |
| including | 21.70 | 27.30 | 5.60 | 33.66 |
| JAB-21-010 | - | 42.00 | 42.00 | 1.79 |
| including | 23.60 | 27.00 | 3.40 | 8.00 |
| 90.60 | 94.50 | 3.90 | 0.73 |
- Assay results are in core length; true width is unknown at this time.
Based on the drilling and mapping done to date, the Tarachi geology team believes the gold is hosted in a 10-to-20-metre-thick panel of heavily silicified rhyodacite striking roughly north-south, dipping to the east at an approximate angle of 30 degrees and plunging to the south at 25 degrees. Higher-grade gold mineralization is suspected to be concentrated within this panel in vertical zones or shoots running east-west. Hole JAB-2109, which was drilled to the southeast, shows evidence of this with its multiple higher-grade subintervals including more than an ounce per tonne of gold over 5.6 m.
The results from drill hole JAB-21-09 are very similar in both grade and length to the past year's channel sample across the north-south face of the underground workings, which returned 6.34 grams per tonne gold over 62.55 m and also contained many subintervals of one to six m with grades between 7.4 and 55.2 g/t Au (see press release dated Aug. 20, 2020). Combined, the channel sampling and two rounds of drilling demonstrate a strike length of over 100 m of high-grade mineralization that remains open along strike to the south and downdip to the east. The potential to find continuation of the mineralized zones to the west, on the other side of a fault found in the underground workings, is undetermined at this time. To the north, the unit appears to come to surface not far from the La Dura underground workings due to the unit's plunge.
Hole JAB-21-10, drilled to the east, appears to have remained within the mineralized panel for a considerable length but likely did not intersect as many of the higher-grade east-west-trending zones.
Hole JAB-21-08, drilled to the south at a dip of 30 degrees, may have exited out the bottom of the main mineralized panel early on. The 11.7 m intersection of 2.48 g/t starting from 71.15 m down the hole may represent the hole re-entering the main panel or possibly an additional mineralized structure that is parallel to and below the main panel. Deeper intercepts were also encountered in holes JAB-21-10, JAB-20-04 and JAB20-06 (see press releases dated Nov. 24, 2020, and Dec. 3, 2020). Drill hole JAB-20-06, drilled from the same pad at an azimuth of 150 degrees and dip of 30 degrees, intercepted 2.22 g/t Au over 8.5 m starting from 74 m downhole.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
RESULTS OF OPERATION, CONTINUED
Tarachi Properties, continued
The reverse circulation surface drilling program is expected to provide greater clarity as to the true thickness of the panel as well as if there are additional parallel structures at depth or if the deeper intercepts are still part of the main mineralized panel.
The target panel has been found to be very poor in sulphide mineralization with only minor veinlets containing sulphides found in some holes. In the gold-rich intersections, iron averages less than 1 per cent, sulphur less than 0.1 per cent, copper less than 20 parts per million and lead about 60 ppm. Silver values typically range between one and five g/t.
On June 08, 2021 the company announced additional assay results from surface reverse circulation drill holes JAB-21-11C, and JAB-21-12 to JAB-21-15 completed at the historic La Dura mine on the Company’s Jabali concession. The drill program tested the down-dip and potential southern plunge in areas of known gold bearing structures. Table # 1 highlights areas with significant gold concentrations contained in the four surface drill holes.
Table #1
| Diamond | drill hole | composites | ||
|---|---|---|---|---|
| Hole ID | From(m) | To(m) | Core length(m) | Gold(g/t) |
| JAB-21-11C | 28.50 | 31.50 | 3.00 | 0.63 |
| JAB-21-12 | 15.00 | 24.00 | 9.00 | 0.22 |
| 88.50 |
91.50 | 3.00 | 0.37 | |
| 132.00 | 135.00 | 3.00 | 2.35 | |
| JAB-21-13 | 52.50 | 54.00 | 1.50 | 1.56 |
| JAB-21-14 | 9.00 |
21.00 | 12.00 | 7.26 |
| Including | 15.00 | 21.00 | 6.00 | 12.20 |
| 73.50 | 76.50 | 3.00 | 1.68 | |
| JAB-21-15 | 109.50 |
121.50 |
12.00 | 0.23 |
- Assay results are in core length; true width is unknown at this time.
Reverse circulation holes JAB-21-11C and JAB-21-12 tested the inferred intersection of the Baby Doll Zone to the Main trend. It appears that brittle structural displacements of the stratigraphy in this area are not fully understood and need to be further analysed. JAB-21-13/15 tested the potential eastern extent of mineralization with limited success. JAB-21-14 confirmed both the trend and anticipated gold concentrations. The program indicated the western bounding structure may be playing an important role in the development of this deposit. Tarachi geologists are now compiling these results with historical drilling to determine the next phase of reverse circulation drilling at La Dura.
TECHNICAL DISCLOSURE
All technical disclosure covering the Company’s mineral properties was prepared under the supervision of Lorne Warmer, P.Geo. for the Company and a “Qualified Person” within the meaning of NI 43-101.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
RESULTS OF OPERATION, CONTINUED
FINANCIAL RESULTS
For the nine months ended April 30, 2021 (“2021”) and 2020 (“2020”), the Company reported net loss of $3,521,084 and $399,449.
| Three months ended April 30, | Three months ended April 30, | Three months ended April 30, | Nine months ended | Nine months ended | April 30, | |
|---|---|---|---|---|---|---|
| 2021 | 2020 | Variance | 2021 | 2020 | Variance | |
| Professional fees | 43,376 | 14,746 | 28,630 | 185,093 | 26,197 | 158,896 |
| Consulting fees | 125,365 | 19,079 | 106,286 | 700,532 | 31,579 | 668,953 |
| Transfer agent and filing fees | 6,299 | 5,778 | 521 | 34,392 | 15,469 | 18,923 |
| Stock-based compensation | 360,496 | - | 360,496 | 1,649,945 | 29,375 | 1,620,570 |
| General and administrative | 371,926 | 17,995 | 353,931 | 976,835 | 48,105 | 928,730 |
| Write-down of mineralproperty | - | 248,724 | (248,724) | - | 248,724 | (248,724) |
The net loss of the Company increased by $3,121,635 during 2021 compared to 2020. Stock based compensation is a non-cash item. Excluding stock-based compensation the loss for 2021, is $1,649,945 compared to $29,375 for 2020.
General and administrative expense form largest component of the operating expenses. Increase in the operations and complexity of the Company resulted in an increase in general and administration cost in 2021. Rent expense, support services and marketing costs included under general and administrative cost resulted in an increase during 2021.
Consulting fees increased due to increase in fees charged by the consultants and an increase in number of consultants used by the Company.
Professional fees are related to the fees paid to lawyers and auditors. Increased in such services resulted in an increase in related costs.
SUMMARY OF QUARTERLY RESULTS
Selected quarterly information for each of the eight most recently completed financial periods is set out below. All results were compiled using IFRS.
| Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | |
|---|---|---|---|---|---|---|---|---|
| April 30, | January 31,October 31, | July 31, | April 30, | January 31,October 31, | July 31, | |||
| 2021 | 2021 | 2020 | 2020 | 2020 | 2020 | 2019 | 2019 | |
| Revenues | - | - |
- | - | - | - | - | |
| Net loss | 883,838 | 986,679 | 1,650,567 | 1,063,753 | 306,322 | 60,939 | 32,188 | 8,145 |
| Loss per common share |
($0.01) | ($0.03) | ($0.03) | ($0.04) | ($0.01) | ($0.01) | ($0.02) | ($0.01) |
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
SUMMARY OF QUARTERLY RESULTS, CONTINUED
Increase in loss during the last three quarters were due to issuance of stock options and increased activity levels of the Company. The 3[rd] quarter ended April 30, 2020, company abandoned the Jack white property and recognized an impairment cost in the financial statements.
LIQUIDITY
The Company reported working capital of $4,747,565 as of April 30, 2021, compared to $1,064,111 as of July 31, 2020. Increased in the working capital was due to the closing of the financing during the 1[st] quarter ended October 31, 2020.
During the nine months ended April 30, 2021, $3,850,335 was used in operating activities compared to that of $47,949 for the comparative period. While investing activities used $3,444,511 (April 30, 2020 $35,299), financing activities generated $7.6 million in cash during the nine months ended April 30, 2021.
The Company’s financial instruments are cashable at any time without restriction.
The Company has no long-term debt or commitments.
As the Company has limited or no revenues, its ability to fund operations is dependent upon its ability to secure financing through the sale of equity or assets. The value of any mineral property is dependent upon the existence of economically recoverable mineral reserves, or the possibility of discovering such reserves, or proceeds from the disposition of such properties. See Section “Risk Factors”, below.
CAPITAL RESOURCES
The Company had 71,120,799 issued and outstanding common shares as of April 30, 2021 (July 31, 2020 – 37,094,664).
The proceeds from private placements (described under overall performance) will be used for exploration and general working capital purposes.
As part of the private placement the Company issued 11,859,303 warrants and 755,610 finders warrants which will expire on August 14, 2022.
The Company issued 500,000 shares pursuant to the option agreement to acquire the Juliana and Las Moritas property, 2,500,000 shares pursuant to the option agreement to acquire the Tarachi property and 6,109,250 shares pursuant to the purchase agreement to acquire the Magistral project. The Company issued 108,280 shares pursuant to a geological consulting agreement during the nine months ended April 30, 2021.
During the nine months ended April 30, 2021, the Company issued 4,885,000 options with a weighted average exercise price of $0.40.
The fair value of the options granted was calculated using the Black-Scholes option pricing model with a riskfree interest rate of 0.19%-0.29%, expected volatility of 160%-180% and zero expected dividend yield for a four-year term. The Company recorded total fair value of $1,649,945 as share-based compensation for the nine months ended April 30, 2021.
During the nine months ended April 30, 2021, 400,000 options and 690,000 warrants were exercised for cash proceeds of $204,850.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
OFF-BALANCE SHEET ARRANGEMENTS
As a policy, the Company does not enter into off-balance sheet arrangements with special-purpose entities in the normal course of business, nor does it have any unconsolidated affiliates.
TRANSACTIONS WITH RELATED PARTIES
Unless otherwise noted, related party transactions were incurred in the normal course of operations and are measured at the exchange amount, being the amount established and agreed upon by the related parties.
The Company’s key management personnel consist of directors and executives and companies owned, directly or indirectly, by key management personnel of the Company.
| Name | Nature of Transactions |
|---|---|
| Lorne Warner, former CEO | Consulting |
| Martin Bajic, former CFO | Consulting |
| Michael Konnert, Chairman, Director | Consulting |
| Mahesh Liyanage, CFO | Consulting |
| Inventa Capital Corp. | rent and general and administrative expenses |
As at April 30, 2021, the Company has amounts due to related parties totaling $Nil (July 31, 2020: $5,250).
The Company’s key management compensation and related party transactiond for the nine and three months ended April 30, 2021 and 2020 is as follows:
| For the three | months ended | For the nine | months ended | |
|---|---|---|---|---|
| April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 |
|
| Consulting | $ 85,500 | $ 12,600 | $ 169,000 | $ 25,100 |
| Rent and general and administration |
45,000 | 15,000 | 135,000 | 45,000 |
| Stock based compensation |
252,348 | - | 1,377,639 | - |
| Total | $ 382,848 | $ 27,600 |
$ 1,681,639 |
$99,475 |
PROPOSED TRANSACTIONS
The Company has a business plan that includes identifying and acquiring exploration projects, conducting exploration on the projects. Acquisitions and dispositions are an essential and on-going part of this plan.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s consolidated financial statements requires management to make certain estimates that affect the amounts reported in the consolidated financial statements. The accounting estimates considered to be significant include the recognition of deferred income tax assets and share-based compensation.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
CRITICAL ACCOUNTING ESTIMATES, CONTINUED
Deferred income tax assets
The Company does not believe it is likely that current tax losses will be utilized before they expire, therefore related deferred tax assets have not been recognized in the consolidated financial statements. When the situation changes, such that the future tax benefits of unused tax losses and other deductions carried forward are more likely to be realized, the deferred tax assets will be recorded in the accounts of the Company.
Share-based compensation
Calculating share-based compensation requires estimates of expected volatility in the share price, risk-free interest rates, number of options expected to vest, and a determination that standard option pricing models such as Black-Scholes fairly represent the actual compensation associated with options. Share price volatility is calculated using the Company’s own trading history. The risk-free interest rate is obtained from the Bank of Canada zero coupon bond yield for the expected life of the options. The Company believes that the BlackScholes option pricing model is appropriate for determining the compensation cost associated with the grant of options.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
There has been no adoption or recognition of accounting policies other than that are disclosed in the note 3 to the annual audited financial statements for the years ended July 31, 2020 and 2019.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
The Company’s activities expose it to a variety of financial risks, which include foreign currency risk, credit risk and liquidity risk. The Company’s risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.
Foreign Currency Risk
The Company incurs certain expenses in currencies other than the Canadian dollar. The Company is subject to foreign exchange risk as a result of fluctuations in exchange rates. The Company manages this risk by maintaining bank accounts in US dollars and Mexican pesos to pay foreign currency expenses as they arise. Receipts in foreign currencies are maintained in those currencies. The Company does not undertake currency hedging activities. The Company also does not attempt to hedge the net investment and equity of integrated foreign operations.
Credit Risk
Credit risk is the risk of an unexpected loss if a counterparty or third party to a financial instrument fails to meet its contractual obligations. To reduce credit risk, cash and cash equivalents are on deposit at major financial institutions.
The Company is not aware of any counterparty risk that could have an impact on the fair value of the cash and cash equivalents.
The carrying value of the financial assets represents the maximum credit exposure. The Company minimizes credit risk by reviewing the credit risk of the counterparties to its arrangements prior to entering into such agreements.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS, CONTINUED
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis, including exploration plans. The Company attempts to ensure that there are sufficient funds to meet its short-term business requirements, considering its anticipated cash flows from operations and holdings of cash and cash equivalents.
OTHER REQUIREMENTS
Risks Factors and Uncertainties
Sensitivity Analysis
The Company measures the effect on total assets or total receipts of reasonably foreseen changes in interest rates and foreign exchange rates. The analysis is used to determine if these risks are material to the financial position of the Company. On the basis of current market conditions, the Company has determined that a 1% change in interest rates or a 10% change in foreign exchange rates would be immaterial. Actual financial results for the coming year will vary since the balances of financial assets are expected to decline as funds are used for Company expenses.
Overview
The Company is subject to many risks that may affect future operations over which the Company has little control. These risks include, but are not limited to, intense competition in the resource industry, market conditions and the Company’s ability to access new sources of capital, mineral property title, results from property exploration and development activities, and currency fluctuations. The Company has a history of recurring losses and there is no expectation that this situation will change in the foreseeable future.
Competition
Other exploration companies, including those with greater financial resources than the Company, could adopt or may have adopted the same business strategies and thereby compete directly with the Company, or may seek to acquire and develop mineral claims in areas targeted by the Company. While the risk of direct competition may be mitigated by the Company’s experience and technical capabilities, there can be no assurance that competition will not increase or that the Company will be able to compete successfully.
Access to Capital
The exploration and subsequent development of mineral properties is capital intensive. Should it not be possible to raise additional equity funds when required, the Company may not be able to continue to fund its operations which would have a material adverse effect on the Company’s potential profitability and ability to continue as a going concern. At present, the Company has cash resources to fund planned exploration for the next twelve months. Timing of additional equity funding will depend on market conditions as well as exploration requirements.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
OTHER REQUIREMENTS (CONTINUED)
Risks Factors and Uncertainties (continued)
In recent years, the securities markets in Canada have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly those considered exploration stage companies, have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. These conditions may persist for an indeterminate period of time.
Foreign Operations and Political Risk
The Company’s mineral properties are located in Canada and Mexico. In foreign jurisdictions, mineral exploration and mining activities may be affected in varying degrees by political or economic instability, expropriation of property and changes in government regulations such as tax laws, business laws, environmental laws and mining laws. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may materially adversely affect its business, or if significant enough, may make it impossible to continue to operate in certain countries. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, foreign exchange restrictions, export controls, income taxes, expropriation of property, environmental legislation and exploration health and safety. These risks are not unique to foreign jurisdictions and apply equally to the property interest in Canada.
Mineral Property Tenure and Permits
The Company has completed a review of its mineral property titles and believes that all requirements have been met to ensure continued access and tenure for these titles. However, ongoing requirements are complex and constantly changing so there is no assurance that these titles will remain valid. The operations of the Company will require consents, approvals, licenses and/or permits from various governmental authorities. There can be no assurance that the Company will be able to obtain all necessary consents, approvals, licenses and permits that may be required to carry out exploration, development and production operations at its projects.
Although the Company acquired the rights to some or all of the resources in the ground subject to the tenures that it acquired, in most cases it does not thereby acquire any rights to, or ownership of, the surface to the areas covered by its mineral tenures. In such cases, applicable laws usually provide for rights of access to the surface for the purpose of carrying on exploration activities, however, the enforcement of such rights can be costly and time consuming. It is necessary, as a practical matter, to negotiate surface access.
There can be no guarantee that, despite having the right at law to access the surface and carry-on exploration activities, the Company will be able to negotiate a satisfactory agreement with existing landowners for such access, and therefore it may be unable to carry out exploration activities. In addition, in circumstances where such access is denied, or no agreement can be reached, the Company may need to rely on the assistance of local officials or the courts in such jurisdictions.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
OTHER REQUIREMENTS (CONTINUED)
Risks Factors and Uncertainties (continued)
Speculative Nature of Mineral Exploration and Development
The exploration for and development of mineral deposits involves significant risk which even a combination of careful evaluation, experience and knowledge may not adequately mitigate. While the discovery of an ore body may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. There is no assurance that commercial quantities of ore will be discovered on any of the Company’s properties. Even if commercial quantities of ore are discovered, there is no assurance that the mineral property will be brought into production. Whether a mineral deposit will be commercially viable depends on a number of factors, including the particular attributes of the deposit, such as its size, grade, metallurgy, and proximity to infrastructure; commodity prices, which have fluctuated widely in recent years; and government regulations, including those relating to taxes, royalties, land tenure, land use, aboriginal rights, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, and the Company’s business may be adversely affected by its inability to advance projects to commercial production.
Uninsured or Uninsurable Risks
The Company may become subject to liability for pollution or hazards against which it cannot insure or against which it may elect not to insure where premium costs are disproportionate to the Company’s evaluation of the relevant risks. The payment of such insurance premiums and of such liabilities would reduce the funds available for exploration and operating activities.
Commodity Prices
The prices of gold, silver, copper, lead, zinc, moly, and other minerals have fluctuated widely in recent years and are affected by a number of factors beyond the Company’s control, including international economic and political conditions, expectations of inflation, international currency exchange rates, interest rates, consumption patterns, and speculative activities and increased production due to improved exploration and production methods. Fluctuations in commodity prices will influence the willingness of investors to fund mining and exploration companies and the willingness of companies to participate in joint ventures with the Company and the level of their financial commitment. The supply of commodities is affected by various factors, including political events, economic conditions and production costs in major producing regions. There can be no assurance that the price of any commodities will be such that any of the properties in which the Company has, or has the right to acquire, an interest may be mined at a profit.
Conflicts of Interest
Certain directors and officers of the Company also serve as directors, officers and advisors of other companies involved in natural resource exploration and development. To the extent that such companies may participate in ventures with the Company, such directors and officers may have conflicts of interest in negotiating and concluding the terms of such ventures. Such other companies may also compete with the Company for the acquisition of mineral property rights. In the event that any such conflict of interest arises, the Company’s policy is that such director or officer will disclose the conflict to the board of directors and, if the conflict involves a director, such director will abstain from voting on the matter. In accordance with the Business Corporations Act (BC), the directors and officers of the Company are required to act honestly and in good faith with a view to the best interests of the Company.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
OTHER REQUIREMENTS (CONTINUED)
Risks Factors and Uncertainties (continued)
Dependence Upon Others and Key Personnel
The success of the Company’s operations will depend upon numerous factors including its ability to attract and retain additional key personnel in exploration, marketing, joint venture operations and finance. This will require the use of outside suppliers as well as the talents and efforts of the Company and its consultants and employees. There can be no assurance that the Company will be successful in finding and retaining the necessary employees, personnel and/or consultants in order to be able to successfully carry out such activities. This is especially true as the competition for qualified geological, technical personnel and consultants can be particularly intense.
Government Regulation
The Company operates in an industry which is governed by numerous regulations, including but not limited to, environmental regulations as well as occupational health and safety regulations. Most of the Company’s mineral properties are subject to government reporting regulations. The Company believes that it is in full compliance with all regulations and requirements related to mineral property interest claims. However, it is possible that regulations or tenure requirements could be changed by the respective governments resulting in additional costs or barriers to development of the properties. This would adversely affect the value of properties and the Company’s ability to hold onto them without incurring significant additional costs. It is also possible that the Company could be in violation of, or non-compliant with, regulations it is not aware of.
Effects of COVID-19
COVID-19 (the coronavirus) has threatened a slowdown in the global economy as well as caused volatility in the global financial markets. While the full impact of COVID-19 on the global economy is uncertain, the rapid spread of COVID-19 may have an adverse effect on the Company's financial position. The extent to which COVID-19 may impact the Company’s business will depend on future developments such as the geographic spread of the disease, the duration of the outbreak, travel restrictions, physical distancing, business closures or business disruptions and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. Although it is not possible to reliably estimate the length or severity of these developments and their financial impact as of the date of approval of these condensed interim consolidated financial statements, continuation of the prevailing conditions could have a significant adverse impact on the Company's financial position and results of operations for future periods.
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TARACHI GOLD CORP. (FORMERLY KAL MINERALS CORP.) MANAGEMENT DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED APRIL 30, 2021 AND 2020
ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT SIGNIFICANT REVENUE
The significant components of general and administrative expenditures are presented in the consolidated financial statements. Significant components of mineral property expenditures are included in Section Results of Operations.
Outstanding Share Data
As of the date of this MD&A, the Company had 76,989,610 issued and outstanding common shares. In addition, the Company has 6,855,000 options outstanding that are expiring through February 08, 2026, and 25,167,727 warrants outstanding that are expiring through August 14, 2022. Details of issued share capital are included in Note 4 of the condensed interim financial statements for the nine months ended April 30, 2021.
OTHER INFORMATION
All technical reports on material properties, press releases and material change reports are filed on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
This document includes certain forward-looking statements concerning the future performance of the Company’s business, its operations, its financial performance and condition, as well as management’s objectives, strategies, beliefs and intentions. Forward-looking statements are frequently identified by such words as “may”, “will”, “plan”, “expect”, “anticipate”, “estimate”, “intend” and similar words referring to future events and results. Forward-looking statements are based on the current opinions and expectations of management. All forward-looking information is inherently uncertain and subject to a variety of assumptions, risks and uncertainties. Factors that may cause actual results to vary from forward looking statements include, but are not limited to, the Company’s ability to access capital, the speculative nature of mineral exploration and development, fluctuating commodity prices, competitive risks and reliance on key personnel, as described in more detail in this document under “Risk Factors and Uncertainties”. Statements relating to estimates of reserves and resources are also forward-looking statements as they involve risks and assumptions (including, but not limited to, assumptions with respect to future commodity prices and production economics) that the reserves and resources described exist in the quantities and grades estimated and are capable of being economically extracted. Actual events or results may differ materially from those projected in the forwardlooking statements and we caution against placing undue reliance thereon.
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